Wednesday, July 29, 2009

Does Waxman-Markey Put U.S. Energy Security at Risk?

One of the arguments that proponents of a cap-and-trade program make is that we need to develop more homegrown sources of energy in order to increase our energy security. They believe a cap-and-trade program will create incentives to produce more renewable energy in the United States by increasing the price of traditional fuels.

There is no question that projected energy growth over the next 30 years will require us to develop numerous sources of energy – both traditional and alternative sources. But it appears Waxman-Markey will create incentives that could actually make us less energy secure in the near term.

The legislation makes the U.S. refining industry responsible for both their facility emissions and the emissions from the end-use of their products – vehicle combustion. Together, facility and vehicle emissions account for approximately 40 percent of total U.S. greenhouse gas emissions. However, the legislation only grants the refining industry two percent of the free emissions permits that will be distributed under the bill.

This significant gap between the emissions U.S. refiners are responsible for under the legislation and the free emissions permits they will be awarded means the refining industry will have to buy permits from other industries in order to be in compliance. Refiners from overseas will only need permits for vehicle emissions, not the emissions from their refineries. This will give them a competitive advantage.

The result is that the bill could create incentives for U.S. refiners to import more gasoline and diesel fuel from abroad and produce less here at home. As the article below points out, that could lead to idled refining capacity or the outright closure of U.S. refineries due to the cost advantage overseas refiners will have. As refining capacity is moved overseas to countries with little or no environmental standards, carbon emissions will rise causing global greenhouse gas emissions to increase.

Are our memories really this short? Just four years ago, following hurricanes Rita and Katrina, politicians were clamoring for more refining capacity to protect against supply disruptions and price volatility. Now Congress passes legislation that could result in increased reliance on imported gasoline and diesel fuel which increases the risk of – you guessed it – supply disruptions and price volatility.

This is yet another example of why a climate change policy must be crafted as part of a global agreement.

“Big Oil’s Answer to Carbon Law May Be Fuel Imports,” Bloomberg News, June 26, 2009

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